Consumers and Businesses Spurred U.K. Economy Before Brexitby
Household spending grows at fastest pace since Q3 of 2014
Businesses defy expectations by increasing investment
U.K. consumers stepped up their spending in the second quarter and businesses increased investment as the economy showed few signs of reticence before the June Brexit referendum.
Household spending rose 0.9 percent, the fastest pace in almost two years, the Office for National Statistics said on Friday. Business investment gained 0.5 percent. Overall economic growth quickened to 0.6 percent from 0.4 percent, unrevised from an initial estimate, though net trade was a drag on growth again.
“Our survey returns, which include the period leading up to and immediately following the referendum, show no sign so far of uncertainty having significantly affected investment or GDP,” ONS Chief Economist Joe Grice said in a statement.
The decision to leave the European Union cast an abrupt shadow over the economy, prompting the Bank of England to cut interest rates this month for the first time since 2009 and piling pressure on new Prime Minister Theresa May to deliver a tax and spending boost.
While surveys suggest the June 23 referendum has done little to dampen the spirits of consumers -- an index of confidence rebounded this month as the initial Brexit shock subsided -- tougher times may lie ahead as quickening inflation threatens to erode almost two years of real-wage growth.
“While we still have serious concerns over the U.K. growth outlook, we are a little less pessimistic than we were in the immediate aftermath of the Brexit vote,” said Howard Archer, an economist at IHS Markit in London. Still, he said the decision will “significantly weigh” on activity for a prolonged period.
The rise in business investment last quarter was driven by spending on transport equipment including cars and planes, the ONS said. The level of investment was 0.8 percent lower than a year earlier, and surveys suggest companies are planning to scale back spending plans.
Net trade once again dragged on the economy, knocking 0.3 percentage point off growth in the second quarter as exports barely rose.
The 10 percent fall in the trade-weighted value of the pound since the Brexit vote may aid exports, but not by enough to prevent a sharp slowdown. The economy will contract by 0.1 percent in the third quarter, according to economists polled by Bloomberg between Aug. 5 and Aug. 12.
Growth in the second quarter was heavily centered on April. In June alone, manufacturing and construction shrank, while new figures Friday show the dominant services sector grew just 0.2 percent. Services growth in the second quarter was unrevised at 0.5 percent.
The figures come hours before the U.S. publishes estimates for the second quarter, with economists predicting annualized growth of 1.1 percent. Annualized growth in the U.K. was 2.4 percent.
The compensation of employees, the widest measure of remuneration, rose 1.6 percent in the second quarter as employment hit record levels. GDP per capita -- a measure of living standards -- climbed 0.4 percent.